The data analyzed in Seyfarth's most recent annual Survey suggests that the M&A environment in 2015 continued to have a favorable impact on key deal terms for sellers. Based on a sampling of deals from the first quarter of 2016, we have seen these seller favorable trends carry over into 2016.
The 2015 data revealed an increase in the use of escrow periods of 12 months or less, a decrease in median escrow amounts and a higher percentage of deals employing an indemnity cap of 10% or less, in each case, as compared to the two prior years.
Buyers continue to attempt to differentiate themselves and present a more compelling bid for acquisition targets or their assets by taking on more risk in their acquisition agreements and offering more aggressive contractual terms to sellers. Buyers are also increasingly purchasing representation and warranty insurance in an effort to make their acquisition proposal even more attractive to a seller by limiting potential post-closing liability of the seller.
While the Survey summarizes a variety of deal terms and trends in middle-market M&A transactions, below are several key takeaways:
- Indemnity Escrow Amounts Are Shrinking - The median indemnity escrow amount in 2015 was 6% of the purchase price compared to 7.41% in 2014 and 8.81% in 2013. In 2015, approximately 76% of the deals surveyed had an indemnity escrow amount of less than 10% of the purchase price compared to 59% in 2014 and 48% in 2013.
- Escrow Periods of 12 Months or Less Continue to Increase - The percentage of deals with an indemnity escrow period of 12 months or less increased to over 46% in 2015 compared to approximately 40% in 2014 and 34% in 2013.
- Most Transactions Continue to Have Representation and Warranty Survival Periods Between 12 to 18 Months - Approximately 80% of deals surveyed had survival periods for general representations and warranties from 12 to 18 months, representing a slight increase when compared to 78% in 2014.
- Median Indemnity Cap Has Remained Unchanged Since 2013 - The median indemnity cap remained steady in 2015 at 10% as compared to prior years.
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Will key deal term trends in private target M&A deals continue through the end of 2016? The 2017 M&A SurveyBook will be released Q1 2017!
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